|China and Greece|
|Over the past week, U.S. financial markets were influenced primarily by events in China and Greece. Concerns about slower growth in China and increased uncertainty about Greece were both favorable for mortgage rates, which ended the week a little lower.|
|The outcome of Sunday’s Greek referendum was not the expected result. The Greeks votedagainst accepting the reform measures demanded by creditors in return for additional aid. Greece already is unable to repay its debts, and another large payment is due on July 20. Economic conditions in Greece are worsening. Greek officials and creditors are continuing to negotiate, but it is still not certain whether a deal will be reached. Without a bailout, Greece may be forced to exit the European Union. The uncertainty has increased demand for relatively safer assets, including U.S. mortgage-backed securities.|
|Looking ahead, investors will be watching for progress in the Greek bailout negotiations and for clues about the pace of economic growth in China. In the U.S., the Retail Sales report will be released on Tuesday. Retail sales account for roughly 70% of economic activity, making this one of the most important reports each month. Industrial Production, another indicator of economic activity, will be released on Wednesday. Housing Starts and the Consumer Price Index (CPI) will come out on Friday. CPI looks at the price change for finished goods which are sold to consumers.|
MBS are up +7/32. Small losses turned to gains after the release of weaker than expected Employment data. Both job gains and wage growth fell short.
The U.S. added 223,000 jobs in June, its third consecutive month of healthy job gains. Thursday’s news was slightly below the prediction from CNNMoney’s survey of economists, which predicted there would be 235,000 jobs added.
June’s job strength is the beginning of an important summer for the economy. The U.S. is the growth engine for the world this year as many other nations slow down. Furthermore, after years of waiting, the Federal Reserve could raise interest rates in September for the first time since 2006. A rate hike would be a healthy sign that the economy is almost fully recovered from the Great Recession.
The catch: the economy needs to perform well between now and September. So far it’s off to a good start.
MBS are down -14/32 (FNMA 30-yr 3.5 at 102.15), around 3/32 below morning levels, and near the low for the day. First some favorable and later some unfavorable repricing was seen. Stronger than expected economic data and decreased pessimism about the Greek situation caused MBS to give back most of Monday’s gains. The ISM national manufacturing index rose to 53.5, above the consensus of 53.0, and matching the high for the year. Construction Spending also exceeded expectations. The Dow is up 140 points. Tomorrow, the Employment report will be released at 8:30 et. The consensus is for an increase of 230K jobs in June. In addition, Jobless Claims and Factory Orders will be released.
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